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Tuesday, July 5, 2011

Conservative v. Liberal: Economic Jujitsu

Ok, nothing substantively new in this post:  just thoughts.

The two parties offer radically different prescriptions for economic recovery, both with short-term and long-term ramifications.

The Liberal Plan:

Short Term:  Massive government spending, in infrastructure, education and transfer payments, keeps the money flowing directly to those who are spending it.  Every dollar spent by the government equals $1.8 dollars spent cumulatively, as each party down the lines spends 80% of the income received.  This is called an economic stabilizer, and economists from both parties agree them to be absolutely necessary.  For any economy to grow, it needs to find stability first. 

Long Term:  Investments in education pay off, as companies can hire more and better educated employees, who fill the structural employment gap noted by Libertarian economists as the reason why unemployment is currently so high.  Liberal economists would argue that with the massive government outlay listed above, unemployment is already reduced, and educated employees contribute to accelerated GDP growth in the long term.  Massive investment in infrastructure means employees can go where the work is, means companies can ship their goods at cheaper rates, means the costs of production generally go down, which makes demand leap up, etc. etc.  Continued transfer payments draw off as the unemployment rate lowers, as the baby boomer's continue to die off, and Generation Y finally goes to work.  Deficit gets reduced, GDP goes up, QED.

The Conservative Plan

Short Term:  By lowering tax rates, and generally drawing down restrictions and regulations on companies, the costs of production are lowered.  By lowering the costs of production, demand is allowed to rise with cheaper prices, and the economy slowly recovers.  Though there is much short term suffering as lowering costs reduce the social safety net, general prosperity will increase in the future, and until then, everyone who isn't making buck just needs to try harder. 

Long Term:  The lower tax rates, don't lead to new business.  Companies have simply taken the money and run, or continue to wait for positive signs in the economy to invest.  However, as the food lines are around the block, home ownership drops, and a dearth of government services mounts, the existing infrastructure crumbles, and business relocate to richer states, or completely different companies where the infrastructre remains solid, it is abundantly clear that this is NOT the time to invest. 

Moreover, tax savings begin to vanish, as the momentary surge in short term demand leveled off within the first year, and companies continue to lay off workers, because people just aren't buying.  Worse, now that transfer payments have cut off abruptly, the nation's baby-boomer's are dying in abandoned ghettos in Florida and New Mexico. 

The unemployed are forced to resort to crime, since there are no jobs.  Fortunately, conservatives are big fans of prisons, and the prison population swells.  The prison population ends up consuming all of the government's excess resources, until they're privatized, at which point, the inmates are neglected, fed based on work output, worked to death, and/or are genetically modified, and generally lose all the rights inherent to being human. 

Let's not forget that the conservatives have cut off all regulatory bodies, or worse, corrupted them to the point where they become industry revolving doors (I know, I know) and the public suffers from a rash of quack remedies which are untested at best, and dangerous at worse.  The only government services receiving any funding at all, are the police, who are advised to use extreme force wherever necessary. 

Financial regulatory bodies like the SEC have completely ceased to exist which means that the only check on the financial system are the public accountants who are paid by the companies themselves to ensure compliance.  Needless to say, compliance fades as businesses, desperate to derive some profits, switch to cheaper and less experienced accountants, who say everything is rosy. 

Everything is rosy, until someone notices the Emperor doesn't have any clothes, at which point the stock market begins to buck and writhe like a rollercoaster, and investors begin to unload U.S. stocks in a panic. The big banks close their doors and layoff hundreds of thousand employees, and as the government has completely defaulted on its debt, no one is willing to lend the money to bail out the government except China, Japan or Germany to bail out the failing U.S. economy.  China, which has been working like hell for self-sufficency tells the U.S. to get bent, takes the loss, because let's face it, they really could care less if their peasants starve or riot.  Japan which has its own crisis to deal with, takes a small portion of the debt, but not nearly enough, further losing their shirts in the decade after the worst decade in the history of the World.  The highly zenophobic population of the U.S. turns to Germany as its last savior...and on and on and on...

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